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Impact of liquidity and information on the mispricing of newly public firms

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Abstract

We test whether the mispricing of newly public firms is affected by liquidity and information during the quiet period, from the end of the quiet period until the lock-up expiration date, and post lock-up. Liquidity is affected by the underwriter’s stabilization efforts during the quiet period and the founder’s ability to sell shares in the post-lockup period. Based on a sample of winner and loser events for more than 2,600 newly public firms during 1992–2001, the degree of under-or overreaction is conditioned on the period within the aftermarket following the IPO. We attribute the results to different liquidity and information effects among the three periods.

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Authors and Affiliations

  1. Andreas School of Business, Barry University, Miami, Floria

    Joan Wiggenhorn (Assistant Professor of Finance)

  2. Department of Finance, College of Business, Florida Atlantic University, 777 Glades Road, P.O. Box 3091, Boca Raton, FL

    Jeff Madura (Suntrust Bank Professor of Finance)

Authors
  1. Joan Wiggenhorn
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  2. Jeff Madura
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Correspondence to Joan Wiggenhorn.

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Wiggenhorn, J., Madura, J. Impact of liquidity and information on the mispricing of newly public firms. J Econ Finan 29, 203–220 (2005). https://doi.org/10.1007/BF02761554

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